Deck 6: Activity Analysis,cost Behavior,and Cost Estimation

Question 1

In regression analysis,the variable that is being predicted is known as the independent variable.

Answer 1

False

Question 2

A company observed a decrease in the cost per unit.All other things being equal,which of the following is probably true?

A)The company is studying a variable cost,and total volume has increased.
B)The company is studying a variable cost,and total volume has decreased.
C)The company is studying a fixed cost,and total volume has increased.
D)The company is studying a fixed cost,and total volume has decreaseD.
E)The company is studying a fixed cost,and total volume has remained constant.

Answer 2

C

Question 3

The least-squares regression method of cost estimation relies on only two data points.

Answer 3

False

Question 4

A forecast of a cost at a particular level of activity is termed:

A)cost estimation.
B)cost prediction.
C)cost behavior.
D)cost analysis.
E)cost approximation.

Question 5

Parker Corporation observed that when 25,000 units were sold,a particular cost amounted to $75,000,or $3.00 per unit.When volume increased by 10%,the cost totaled $82,500 (i.e. ,$3.00 per unit).The cost that Parker is studying can best be described as a:

A)variable cost.
B)fixed cost.
C)semivariable cost.
D)discretionary fixed cost.
E)step-fixed cost.

Question 6

Mastel Company has a variable selling cost.If sales volume increases,how will the total variable cost and the variable cost per unit behave?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 7

Normal Company pays a sales commission of 4% on each unit sold.If a graph is prepared,with the vertical axis representing per-unit cost and the horizontal axis representing units sold,how would a line that depicts sales commissions be drawn?

A)As a straight diagonal line,sloping upward to the right.
B)As a straight diagonal line,sloping downward to the right.
C)As a horizontal line.
D)As a vertical line.
E)As a curvilinear linE.

Question 8

Which of the following choices denotes the typical cost behavior of advertising and sales commissions?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 9

Mismatched time periods is not an issue in the collection of data for cost estimation.

Question 10

The relationship between cost and activity is termed:

A)cost estimation.
B)cost prediction.
C)cost behavior.
D)cost analysis.
E)cost approximation.

Question 11

Variable costs change in direct proportion to a change in the activity level.

Question 12

Straight-line depreciation is a typical example of a:

A)variable cost.
B)step-variable cost.
C)fixed cost.
D)mixed cost.
E)curvilinear cost.

Question 13

When graphed,a typical fixed cost appears as:

A)a horizontal line.
B)a vertical line.
C)a u-shaped line.
D)a diagonal line that slopes downward to the right.
E)a diagonal line that slopes upward to the right.

Question 14

What type of cost exhibits the behavior that follows?

A)Variable cost.
B)Fixed cost.
C)Semivariable cost.
D)Step-variable cost.
E)Mixed cost.

Question 15

Wooster has the following budgeted costs at its anticipated production level (expressed in hours): variable overhead,$165,000;fixed overhead,$250,000.If Wooster now revises its anticipated production slightly upward,it would expect:

A)total fixed overhead of $250,000 and a lower hourly rate for variable overhead.
B)total fixed overhead of $250,000 and the same hourly rate for variable overhead.
C)total fixed overhead of $250,000 and a higher hourly rate for variable overhead.
D)total variable overhead of less than $165,000 and a lower hourly rate for variable overheaD.
E)total variable overhead of less than $165,000 and a higher hourly rate for variable overhead.

Question 16

Costs that remain the same over a wide range of activity,but jump to a different amount outside that range,are termed:

A)step-fixed costs.
B)step-variable costs.
C)semivariable costs.
D)curvilinear costs.
E)mixed costs.

Question 17

What type of cost exhibits the behavior that follows?

A)Variable cost.
B)Fixed cost.
C)Semivariable cost.
D)Discretionary fixed cost.
E)Step-fixed cost.

Question 18

When graphed,a typical variable cost appears as:

A)a horizontal line.
B)a vertical line.
C)a u-shaped line.
D)a diagonal line that slopes downward to the right.
E)a diagonal line that slopes upward to the right.

Question 19

The relevant range is that range of activity where a company achieves its maximum efficiency.

Question 20

Which of the following costs changes in direct proportion to a change in the activity level?

A)Variable cost.
B)Fixed cost.
C)Semivariable cost.
D)Step-variable cost.
E)Step-fixed cost.

Question 21

The relevant range is that range of activity:

A)where a company achieves its maximum efficiency.
B)where units produced equal units sold.
C)where management expects the firm to operate.
D)where the firm will earn a profit.
E)where expected results are abnormally high.

Question 22

A cost that has both a fixed and variable component is best termed a:

A)step-fixed cost.
B)step-variable cost.
C)semivariable cost.
D)curvilinear cost.
E)discretionary cost.

Question 23

When graphed,a typical step-fixed cost appears as:

A)a horizontal line.
B)a vertical line.
C)a series of staggered horizontal lines
D)a diagonal line that slopes downward to the right.
E)a diagonal line that slopes upward to the right.

Question 24

Costs that result from a company's ownership or use of facilities and its basic organizational structure are termed:

A)discretionary fixed costs.
B)committed fixed costs.
C)discretionary variable costs.
D)committed variable costs.
E)engineered costs.

Question 25

A variable cost that has a definitive physical relationship to the activity measure is called a(n):

A)discretionary cost.
B)engineered cost.
C)managed cost.
D)programmed cost.
E)committed cost.

Question 26

Each of Davisson's production managers (annual salary cost,$45,000)can oversee 60,000 machine hours of manufacturing activity.Thus,if the company has 50,000 hours of manufacturing activity,one manager is needed;for 75,000 hours,two managers are needed;for 125,000 hours,three managers are needed;and so forth.Davisson's salary cost can best be described as a:

A)variable cost.
B)semivariable cost.
C)step-variable cost.
D)fixed cost.
E)step-fixed cost.

Question 27

Rachelle Hamilton has a fast-food franchise and must pay a franchise fee of $45,000 plus 4% of gross sales.In terms of cost behavior,the fee is a:

A)variable cost.
B)fixed cost.
C)step-fixed cost.
D)semivariable cost.
E)curvilinear cost.

Question 28

Which of the following is (are)example(s)of a mixed cost?
I)A building that is used for both manufacturing and sales activities.
II)An employee's compensation,which consists of a flat salary plus a commission.
III)Depreciation that relates to five different machines.
IV)Maintenance cost that must be split between sales and administrative offices.

A)I only.
B)II only.
C)I and III.
D)I,III,and IV.
E)I,II,III,and IV.

Question 29

Within the relevant range,a curvilinear cost function can sometimes be graphed as a:

A)sloping straight line.
B)jagged line.
C)vertical straight line.
D)curved line.
E)horizontal straight linE.

Question 30

Property taxes are an example of a(n):

A)committed fixed cost.
B)committed variable cost.
C)discretionary fixed cost.
D)discretionary variable cost.
E)engineered cost.

Question 31

A review of Parrish Corporation's accounting records found that at a volume of 90,000 units,the variable and fixed cost per unit amounted to $8 and $4,respectively.On the basis of this information,what amount of total cost would Parrish anticipate at a volume of 85,000 units?

A)$1,020,000.
B)$1,040,000.
C)$1,060,000.
D)$1,080,000.
E)Some other amount not listed abovE.

Question 32

Amounts spent for charitable contributions are an example of a(n):

A)committed fixed cost.
B)committed variable cost.
C)discretionary fixed cost.
D)discretionary variable cost.
E)engineered cost.

Question 33

DuChien Corporation recently produced and sold 100,000 units.Fixed costs at this level of activity amounted to $50,000;variable costs were $100,000.How much cost would the company anticipate if during the next period it produced and sold 102,000 units?

A)$150,000.
B)$151,000.
C)$152,000.
D)$153,000.
E)Some other amount not listed abovE.

Question 34

Which of the following is not an example of a committed fixed cost?

A)Property taxes.
B)Depreciation on buildings.
C)Salaries of management personnel.
D)Outlays for advertising programs.
E)Equipment rental costs.

Question 35

Committed fixed costs would include:

A)advertising.
B)research and development.
C)depreciation on buildings and equipment.
D)contributions to charitable organizations.
E)expenditures for direct labor.

Question 36

A mixed cost is often known as a:

A)semivariable cost.
B)step-fixed cost.
C)variable cost.
D)curvilinear cost.
E)discretionary cost.

Question 37

Within the relevant range of activity,costs:

A)can be estimated with reasonable accuracy.
B)can be expected to change radically.
C)exhibit decreasing marginal cost patterns.
D)exhibit increasing marginal cost patterns.
E)cannot be estimated satisfactorily.

Question 38

Which of the following costs exhibits both decreasing and increasing marginal costs over a specific range of activity?

A)Semivariable cost.
B)Curvilinear cost.
C)Step-fixed cost.
D)Step-variable cost.
E)Fixed cost.

Question 39

Which of the following would not typically be classified as a discretionary fixed cost?

A)Equipment depreciation.
B)Employee development (education)programs.
C)Advertising.
D)Outlays for research and development.
E)Charitable contributions.

Question 40

Bowman,Inc. ,has only variable costs and fixed costs.A review of the company's records disclosed that when 200,000 units were produced,fixed manufacturing costs amounted to $800,000 and the cost per unit manufactured totaled $11.On the basis of this information,how much cost would the firm anticipate at an activity level of 205,000 units?

A)$2,235,000.
B)$2,222,000.
C)$2,214,000.
D)$2,200,000.
E)Some other amount not listed abovE.

Question 41

The following data relate to the Lisle Company for May and August of the current year:
May and August were the lowest and highest activity levels,and Lisle uses the high-low method to analyze cost behavior.Which of the following statements is true?

A)The variable maintenance cost is $18 per hour.
B)The variable maintenance cost is $22 per hour.
C)The variable maintenance cost is $24 per hour.
D)The fixed maintenance cost is $72,000 per month.
E)More than one of the above statements is truE.

Question 42

The fixed utilities cost per month is:

A)$3,764.
B)$4,400.
C)$4,760.
D)$5,100.
E)an amount other than those listed abovE.

Question 43

Which of the following choices correctly classifies a committed fixed cost and a discretionary fixed cost?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 44

How much would Swanson's pay if it made 5,500 copies?

A)$382.50.
B)$322.
C)$300.
D)$292.50
E)An amount other than those given abovE.

Question 45

The high-low method and least-squares regression are used by accountants to:

A)evaluate divisional managers for purposes of raises and promotions.
B)choose among alternative courses of action.
C)maximize output.
D)estimate costs.
E)control operations.

Question 46

Using the high-low method,the utilities cost associated with 980 machine hours would be:

A)$9,510.
B)$9,660.
C)$9,700.
D)$9,790.
E)an amount other than those listed abovE.

Question 47

On the basis of this information,the variable cost per machine hour was:

A)$8.40.
B)$22.00.
C)$25.00.
D)$30.40.
E)$33.40.

Question 48

On the basis of this information,the fixed cost was:

A)$184,800.
B)$210,000.
C)$550,000.
D)$734,800.
E)$760,000.

Question 49

Which of the following statements about the visual-fit method is (are)true?
I)The method results in the creation of a scatter diagram.
II)The method is not totally objective because of the manner in which the cost line is determined.
III)The method is especially helpful in the determination of outliers.

A)I only.
B)II only.
C)I and II.
D)I and III.
E)I,II,and III.

Question 50

Swanson's monthly fixed fee is:

A)$80.
B)$102.
C)$106.
D)$112.
E)an amount other than those given abovE.

Question 51

Which of the following methods of cost estimation relies on only two data points?

A)Least-squares regression.
B)The high-low method.
C)The visual-fit method.
D)Account analysis.
E)Multiple regression.

Question 52

The following data relate to the Lisle Company for May and August of the current year:
May and August were the lowest and highest activity levels,and Lisle uses the high-low method to analyze cost behavior.Which of the following statements is true?

A)The variable maintenance cost is $43 per hour.
B)The variable maintenance cost is $45 per hour.
C)The variable maintenance cost is $47 per hour.
D)The fixed maintenance cost is $725,000 per month.
E)More than one of the above statements is truE.

Question 53

The variable utilities cost per machine hour is:

A)$0.18.
B)$4.50.
C)$5.00.
D)$5.50.
E)an amount other than those listed abovE.

Question 54

The following data relate to the Lisle Company for May and August of the current year:
May and August were the lowest and highest activity levels,and Lisle uses the high-low method to analyze cost behavior.If maintenance hours are estimated to be 26,000 hours in October,which of the following statements is true?

A)The variable maintenance cost is $18 per hour.
B)The variable maintenance cost is $22 per hour.
C)The variable maintenance cost is $24 per hour.
D)The fixed maintenance cost is $72,000 per month.
E)More than one of the above statements is truE.

Question 55

On the basis of this information,what were total maintenance costs when the company experienced 23,000 machine hours?

A)$193,200.
B)$550,000.
C)$734,800.
D)$743,200.
E)$760,000.

Question 56

Northlake,Inc. ,uses the high-low method to analyze cost behavior.The company observed that at 20,000 machine hours of activity,total maintenance costs averaged $10.50 per hour.When activity jumped to 24,000 machine hours,which was still within the relevant range,the average total cost per machine hour was $9.75.On the basis of this information,the company's fixed maintenance costs were:

A)$24,000.
B)$90,000.
C)$210,00.
D)$234,000.
E)an amount other than those listed abovE.

Question 57

The nonstatistical method of cost estimation that calls for the creation of a scatter diagram is the:

A)least-squares regression method.
B)high-low method.
C)visual-fit method.
D)account analysis methoD.
E)multiple regression method.

Question 58

Which of the following techniques is not used to analyze cost behavior?

A)Least-squares regression.
B)High-low method.
C)Visual-fit method.
D)Linear programming.
E)Multiple regression.

Question 59

Swanson's variable cost per copy is:

A)$0.040.
B)$0.051.
C)$0.053.
D)$0.056.
E)an amount other than those given abovE.

Question 60

Which type of fixed cost (1)tends to be more long-term in nature and (2)can be cut back more easily in bad economic times without doing serious harm to organizational goals and objectives?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 61

The cost formula that expresses the behavior of Yang's total cost is:

A)Y = $0 + $17X.
B)Y = $20,000 + $13X.
C)Y = $40,000 + $9X.
D)Y = $45,000 + $4X.
E)Y = $60,000 + $5X.

Question 62

Wesley Enterprises has determined that three variables play a key role in determining company revenues.To arrive at an objective forecast of revenues for the next accounting period,Wesley should use:

A)simple regression.
B)multiple regression.
C)a scatter diagram.
D)complex regression.
E)the high-low method.

Question 63

A high R² measure in regression analysis is preferred because:

A)it indicates a good fit of the regression line through the data points.
B)it shows that a great deal of the change in the dependent variable is explained by change in the independent variable.
C)it means that the independent variable is a good predictor of the dependent variable.
D)it means that the cost analyst can be relatively confident in his or her cost predictions.
E)all of the preceding statements are truE.

Question 64

Temperance,Inc.is studying marketing cost and sales volume,and has generated the following information by use of a scatter diagram and a least-squares regression analysis:
Temperance is now preparing an estimate for monthly sales of 18,000 units.On the basis of the data presented,compute the most accurate sales forecast possible.

A)$159,500.
B)$162,000.
C)$164,900.
D)$167,400.
E)An amount other than those listed abovE.

Question 65

Ai Corporation extracts ore for eight different companies in Colorado.The firm anticipates variable costs of $65 per ton along with annual fixed overhead of $840,000,which is incurred evenly throughout the year.These costs exclude the following semivariable costs,which are expected to total the amounts shown for the high and low points of ore extraction activity:
March (850 tons): $39,900
August (1,300 tons): $46,200
A-1 uses the high-low method to analyze cost behavior.
Required:
A.Calculate the semivariable cost for an upcoming month when 875 tons will be extracted.
B.Calculate the total cost for that same month.
C.1.Step-fixed.
2.No.Notice that the bill will be $70,000 for A-1's tonnage,and the company could have Cortez haul up to 1,099 tons for the same cost.Ideally,Ai should try to move to the right side of the step to get a better return on its investment.
C.Ai uses Cortez Trucking to haul extracted ore.Cortez's monthly charges are as follows:

1.From a cost behavior perspective,what type of cost is this?
2.If Ai plans to extract 875 tons,is the company being very "cost effective" with respect to Cortez's billing rates? Briefly discuss.

Question 66

Mohammed Products has determined that the number of machine hours worked (MH)drives the amount of manufacturing overhead incurred (MOH).On the basis of this relationship,a staff analyst has constructed the following regression equation:
MOH = 240,000 + 8MH
Which of the choices correctly depicts the nature of Mohammed's variables?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 67

Booster,Inc.recently conducted a least-squares regression analysis to predict selling expenses.The company has constructed the following regression equation: Y = 329,000 + 7.80X.Which of the following statements is false if the primary cost driver is number of units sold?

A)The company anticipates $329,000 of fixed selling expenses.
B)"Y" represents total selling expenses.
C)The company expects both variable and fixed selling expenses.
D)For each unit sold,total selling expenses will increase by $7.80.
E)"X" represents the number of hours worked during the period.

Question 68

Around Town,Inc.operates a small package delivery service in the Columbus suburbs.If the company uses a regression equation to forecast total operating costs,the equation's intercept would correspond to the:

A)variable operating cost per delivery.
B)fixed operating costs.
C)number of deliveries.
D)total variable operating costs.
E)total operating costs.

Question 69

Package Express,Inc.operates a small package delivery service in the Jacksonville suburbs.If the company uses a regression equation to forecast total operating costs,the coefficient of the equation's independent variable would correspond to the:

A)variable operating cost per delivery.
B)fixed operating costs.
C)number of deliveries.
D)total variable operating costs.
E)total operating costs.

Question 70

The cost types shown above are identified by behavior as:

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 71

Chesley Corporation,which uses least-squares regression analysis,has derived the following regression equation for estimates of manufacturing overhead: Y = 495,000 + 5.65X.Which of the following statements is true if the primary cost driver is machine hours?

A)Total manufacturing overhead is represented by the variable "X."
B)The company anticipates $495,000 of fixed manufacturing overhead.
C)"X" is commonly known as the dependent variable.
D)"X" represents the number of machine hours.
E)Both "B" and "D" are truE.

Question 72

Which of the following tools is not associated with cost estimation?

A)Least-squares regression.
B)Multiple regression.
C)Inversion equations.
D)Time and motion (engineering)studies.
E)Learning curves.

Question 73

Which of the following is not an issue in the collection of data for cost estimation?

A)Outliers.
B)Missing data.
C)Mismatched time periods.
D)Inflation.
E)All of these are issues in data collection.

Question 74

Southbend Medical Clinic offers a number of specialized medical services.A review of data for the year just ended revealed variable costs of $32 per patient day;annual fixed costs of $480,000,which are incurred evenly throughout the year;and semivariable costs that displayed the following behavior at the "peak" and "valley" of activity:
January (2,400 patient days): $258,400
August (2,900 patient days): $278,900
Required:
A.Analysis of semivariable cost (variable portion):
($278,900 - $258,400)/ (2,900 - 2,400)= $41 per patient day

A.Calculate the total cost for an upcoming month (2,800 patient days)if current cost behavior patterns continue.Southbend uses the high-low method to analyze cost behavior.
B.No.The "peak" and "valley" of operation were 2,900 patient days and 2,400 patient days,respectively.The 3,800-patient-day data point is well outside this range of observed cost relationships and recent activity (i.e. ,the relevant range).Costs can change outside of this range (e.g. ,fixed costs may be higher),and the lack of past experience will likely create unknowns for the analyst.
B.There is a high probability that Southbend's volume will increase in forthcoming months as patients take advantage of new scientific advances.Can the data and methodology used in part (a)for predicting the costs of 2,800 patient days be employed to estimate the costs for,say,3,800 patient days? Why or why not?

Question 75

The following data relate to the Lisle Company for May and August of the current year:
May and August were the lowest and highest activity levels,and Lisle uses the high-low method to analyze cost behavior.If maintenance hours are estimated to be 26,000 hours in October,which of the following statements is true?

A)Total maintenance costs will be $1,175,000.
B)Total maintenance costs will be $1,182,000.
C)Total maintenance costs will be $1,193,000.
D)Total maintenance costs will be $1,221,000.
E)Total maintenance costs will be $1,247,000.

Question 76

A staff assistant at Whitmere Corporation recently determined that the first four units completed in a new manufacturing process took 800 hours to complete,or an average of 200 hours per unit.The assistant also found that when the cumulative output produced doubles,the average labor time declines by 20%.On the basis of this information,how many total hours would Washington use if it produces 16 units?

A)128.
B)160.
C)1,280.
D)2,048.
E)An amount other than those listed abovE.

Question 77

If Yang produces 10,000 units,the total cost would be:

A)$90,000.
B)$100,000.
C)$110,000.
D)$125,000.
E)an amount other than those given abovE.

Question 78

Compare and contrast the following types of costs: (1)variable and step-variable and (2)fixed and step-fixed.

Question 79

In regression analysis,the variable that is being predicted is known as the:

A)independent variable.
B)dependent variable.
C)explanatory variable.
D)interdependent variable.
E)functional variablE.

Question 80

Sunshine Valley Meat Company produces one of the best sausage products in Pennsylvania.The company's controller compiled the following information by analyzing the accounting records:
1.Meat costs the company $3.25 per pound of sausage produced.
2.Compensation of production employees is $2.25 per pound of sausage produced.
3.Supervisory salaries total $23,000 per month.
4.The company incurs utility costs of $9,000 per month plus $0.35 per pound of sausage produced.
5.Insurance and property taxes average $6,400 per month.
Required:
A.1.Variable
2.Variable
3.Fixed
4.Semivariable
5.Fixed
A.Classify each cost as variable,fixed,or semivariable.
B.

B.Write a formula to express the behavior of the firm's production costs.(Use the form Y = a + bX,where X denotes the quantity of sausage produceD. )